40" should be alright for a smaller apartment. I have a pretty small apartment (Japanese apartment!) and I have a 32" lcd Mitsubishi hdtv that I use as my main tv(for movies/Wii360 games, etc.) I also have 2 Sony CRT tv's (29" and 25" that I got for cheap, used for older games PS2/SNES/Saturn) and I have a Benq 24" 1080P computer monitor for my desktop. If I can fit all of this stuff into my tiny apartment, then you should be fine!
Though you might want to consider saving some of your money. You might need some for an emergency or something else that you might want.
Also can't you change hard drive's pretty easily on the PS3? You might want to get the 80gb model instead and just buy another hard drive so you can get much more space on there instead of only 160gb. For example, taking a quick look at Newegg.com I saw a 500gb laptop hard drive on there for $99, which you could easily put into your PS3. Or you could get a slightly smaller/cheaper hard drive and use the difference to pick up a PS3 game.